Running your own cryptocurrency exchange is an exciting opportunity to build an innovative business in the 2020s. You can create a platform where people may purchase Bitcoin and other cryptocurrencies, and benefit from the boom in this sector. Although this is an exciting opportunity, you need to do your research and set things up correctly. The cryptocurrency world is coming under increasing scrutiny, and you need to be sure your business is sound.
Money Transmitter License
For example, all types of money-service businesses must register with FinCEN, the Financial Crimes Enforcement Network. This is a bureau of the United States Department of the Treasury that collects and analyzes information about financial transactions in order to combat domestic and international money laundering, terrorist financing, and other financial crimes.
You can easily register on FinCEN’s website and apply for a Money Transmitter License (MTL). However, actually obtaining one is not so easy. You need to follow complex and expensive procedures in order to receive approval. Fortunately, there is another option. You can also work with a licensed transmitter, which allows you to work around the problem and get your exchange up and running more quickly and easily.
USA and UK Regulations
You need to stay compliant with local laws in the countries where you operate. Yet this can be frustrating, because the status of cryptocurrencies is still now clear, even to regulators in countries such as the U.S. and the U.K. Some countries consider Bitcoin a currency while others consider it a commodity. In some cases, it is in a legally grey-area. Laws are being created to provide regulation to this new type of transaction.
Exchange Market Locality
Because of all this, you need to think carefully about the scope of your cryptocurrency exchange. Do you want the complexity of operating globally, or does it make more sense to restrict your reach to a specific country? For current customers, there are many choices.
If you are going global, then your options include Bitfinex or BitStamp. For a single national market, you might choose FlowBTC in Brazil or meXBT in Mexico. It is important to carefully select a market, as different countries have different regulations and risks associated with them.
Once those problems have been resolved, you need to think about the other issues that will affect your cryptocurrency exchange. There will be legal complexities and banking issues to resolve. You will need good legal counsel to assist in determining the location and corporate structure of your enterprise. Your lawyers should also help you limit liability and exposure to litigation, as well as advising on regulatory and compliance issues in the jurisdictions you will operate in.
Good banking relationships are critical for any cryptocurrency exchange, yet they are not always easy to secure. Banks may be hesitant to provide services in this unproven sector. When all of that is set up, you need to work on your technology setup. This means finding a partner who can build and maintain an innovative and sophisticated architecture. You will need systems to pair orders, complete transactions, and handle deposits and withdrawals.
The components required in this system include a matching engine, accounting system, risk management procedures, wallet management, and payment gateways. Creating a good user experience is also important. Whether they are just checking the latest Litecoin price or placing complex trades, users need to find the system easy to navigate.
As with any online financial transaction system, security will be paramount. You must ensure that your exchange is bulletproof and secure from malicious attacks. This includes taking care of matters such as cryptocurrency security, network and hardware security, and two-factor authentication for users.
KYC (Know Your Customer) and AML (Anti-Money Laundering)
You also need to comply with security regulations such as KYC (Know Your Customer) and AML (Anti-Money Laundering) solutions.
When all of this is in place, you should consider the volume of transactions you will support. This is a low-margin business, so you need high volume to make the enterprise worthwhile. This means your infrastructure and setup must be able to support you at the scale you need to operate. You will want to consider channeling liquidity from large exchanges, for example.
Back of House Technology and Scaling
Even the best cryptocurrency exchange in the world cannot succeed without good marketing. Success depends on attracting a large number of users quickly to get traction in the market. So be prepared to hire a team focusing on brand messaging, media presence, and advertising.
There’s a lot to think about when considering how to get a license for a cryptocurrency exchange. But the most important factor of all is choosing the right C-suite team to lead the project. With ‘the right people on the bus,’ you can execute all the above requirements efficiently and create a profitable business.
There is no doubt that cryptocurrencies are changing the world of finance, and opening up amazing new business opportunities. Starting your own cryptocurrency exchange is a fantastic way to leverage the possibilities, help people build wealth…and create your own wealth, too.
Starting a cryptocurrency exchange may not be easy, but the rewards make the investment of time and resources well worthwhile. Take the first steps today, and you could build a business that has a real impact on the world.